Non-bank lenders now dominate SME financing in Europe as traditional banks retreat, exacerbating a €39B annual shortfall.
European SME lending has collapsed 40–50% since Basel III capital rules took effect, with an additional 12% decline since 2023. The tightening has created a €39B annual funding gap for small and medium enterprises across the EU.
Prior to Basel III, banks supplied the majority of SME credit, but stricter capital requirements reduced their appetite for risk. Non-bank lenders have stepped in, offering floating-rate debt that exposes SMEs to higher borrowing costs amid rising interest rates.
The shift highlights structural vulnerabilities in traditional lending channels and may accelerate alternative financing models, including onchain solutions targeting retail investors.